Climate Policy Options: A Comparison of Economic Performance

IMF Working Papers, December 9, 2022

Source details

Authors: Jean Chateau, Florence Jaumotte, Gregor Schwerhoff
Date: December 9, 2022
Abstract: We use a global computable general equilibrium model to compare the economic performance of alternative climate policies along multiple dimensions, including macroeconomic outcomes, energy prices, and trade competitiveness. Carbon pricing which keeps the aggregate cost lower and preserves better the overall competitiveness than across-the-board regulation is the first-best policy, especially in energy intensive and trade exposed industries. Regulations and feebates are good alternatives in the power sector, where technological substitution is possible. Feed-in subsidies, if used alone, are not cost effective.

Carbon pricing:
- "Carbon pricing which keeps the aggregate cost lower and preserves better the overall competitiveness than across-the-board regulation is the first-best policy, especially in energy intensive and trade exposed industries."
Sectoral alternatives:
- "Regulations and feebates are good alternatives in the power sector, where technological substitution is possible."
- "Feed-in subsidies, if used alone, are not cost effective."
Dimensions of comparison:
- Macroeconomic outcomes
- Energy prices
- Trade competitiveness

Prefer carbon pricing as first-best policy, particularly for:
- Energy intensive industries
- Trade exposed industries
Consider regulations and feebates as viable alternatives in the power sector where technological substitution can occur.
Avoid relying solely on feed-in subsidies because they are not cost effective when used alone.

Model used: global computable general equilibrium model
Comparative focus: alternative climate policies across multiple dimensions (macroeconomic outcomes, energy prices, trade competitiveness)
Geographic scope: Global (implied by model and keywords)
Subjects: Carbon tax, Climate policy, Environment, Greenhouse gas emissions, Non-renewable resources, Taxes
Keywords: ambition level, carbon leakage, carbon tax, Climate policy, climate policy option, EITE sectors scenario, Global, Greenhouse gas emissions, Non-renewable resources, policy coordination, Policy instrument, Policy stringency, regulation.